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Building approvals dive - but no 'collapse'

Chris Vedelago

Australia’s construction industry has suffered a setback as building approvals fell sharply in June instead of staging a rally.

Nationally, building approvals fell 6.9 per cent, seasonally adjusted, in June. It’s the second monthly decline in a row and construction activity is now down 13 per cent on the same time last year.

Economists had been tipping building approvals would rise two per cent in June following the Reserve Bank of Australia cutting the cash interest rate to a record low of 2.75 per cent in May.

Shane Garrett, senior economist for the Housing Industry Association, said the figures were ‘‘very disappointing’’ in light of a recent signs the housing market had been improving.

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‘‘It shows how housing activity in general is really quite vulnerable at the moment. We had reason to believe over the last six or nine months there was a bit of recovery underway in building, but these figures would put a question mark over that again,’’ he said

‘‘It’s all the in the high density space,’’ he said. ‘‘This is the very volatile category where we’ve seen big rises as recently as April and not much payback in May but we’ve gotten that in the June numbers.

‘‘Over the quarter, building approvals were up, so you could argue that perhaps there is a little bit of traction there from the policy stimulus the RBA has been delivering but it is clearly not enough. It is a source of anxiety that we’re not getting consistent lift here.’’

The HIA has reiterated its call for the RBA to cut the interest rate again by a further 25 basis points in an effort to underpin the earlier signs of a recovery.

‘‘The succession of interest rate cuts have had an important role in getting housing activity back up off the floor to a certain degree.’’

In Victoria, building approvals plunged by 24.3 per cent over the month, the worst performance anywhere in the country by a wide margin.

Falls of 9.6 per cent were seen in South Australia, and 0.4 per cent in Western Australia. New South Wales and Queensland bucked the trend, posting rises of 6.7 per cent and 7 per cent.

MacroBusiness economist Leith van Onselen said much of the falls were due to steep declines in building activity in the apartment market.

Nationally, apartment and unit approvals fell 12.6 per cent in June and were down 37.4 per cent over the year. Detached homes declined by 1.2 per cent over the month but rose 9.9 per cent for the year.

Victoria alone witnessed a 40 per cent decline in unit and apartment approvals. In NSW, they rose 19 per cent.

‘‘It’s been a pretty weak rebound but its not terrible either. Approvals bottomed in late 2011, but the recovery has been trending nowhere near as strongly as what the RBA or Treasury would like as the mining boom unwinds.’’

CommSec economist Savanth Sebastian said the figures were not concerning, even if they sparked speculation about the state of the home building sector.

‘‘It really is a volatile reading,’’ he said. ‘‘There certainly seems to be a lot of conjecture about how well the home building market is going. What it really highlights is we’ve got normal levels of building across the economy.

‘‘It certainly does not mean the sector is collapsing.’’

Mr Sebastian said he did not believe poor building data was enough of a driver for the RBA to cut rates in August.

‘‘The RBA will certainly be looking at the housing sector very closely, but I don’t think these numbers will be the defining reason why the Reserve Bank cuts rates,’’ he said.

However, he said low interest rates were already having a positive impact.

‘‘It’s still very early days for the sector, but I think the low interest environment is starting to provide a degree of support for the sector.’’